Naira Trades at N461.50 amidst Low Optimism for Improvement
The Nigerian local currency, the naira hold strong against the United States at Investors’ and Exporters’ foreign exchange market on Monday. Market data shows that the naira appreciated by 0.1% to N461.50 amidst steady demand for foreign currencies.
Last week, the activity level in the Investors and Exporters FX Window inched higher by 3.6% to $484 million in the previous week. Today, the level of demand for foreign currencies was moderate.
Analysts remain stuck on a possible devaluation of the Nigerian naira which is estimated to be trading above its fair value in the local foreign exchange markets. The monetary authority’s multiple FX spot rates discouraged foreign investors’ participation in the local economy.
FX scarcity which then necessitated some sort of control over the ability of foreign investors and multinationals to upstream the United States dollar has created FX backlog for the apex bank. Local banks are now unable to serve FX demand by locals for onward payments.
Implementing the apex bank directive, Nigerian banks have stopped monthly dollar spend of $20 per debit card, and the decision has spurred demand for foreign currencies in the parallel market.
In the respective projections, investment banking firm analysts believe the Central Bank of Nigeria is merely postponing the inevitable official naira devaluation. Late in 2022, the Central bank adjusted the local currency by 1.2%.
In 12-month, the local currency has lost about 11% and Bank of America estimated the naira is trading 20% above its fair value. While speaking with investors, Godwin Emefiele, the CBN Governor alluded to the overvaluation of the local currency.
Meanwhile, the International Monetary Fund told the Nigerian government to allow for market clearing FX rate to attract foreign investors into the local economy. The key issue driving FX scarcity in Nigeria has been a lack of portfolio inflow and low FX revenue-generating capability.
The CBN introduced rebates at the investors’ and exporters’ FX market in 2022 after it noted that some exporters channelled FX receipts via the black market. The incentives given to exporters with dollar inflows have improved the level of FX inflow, according to CBN.
Meristem said, “low transaction volumes at the Investors and Exporters Window, mounting capital repatriation pressures, low FX inflows and its resultant effect on accretion to the external reserves thus provide minimal optimism about the improvement in the exchange rate in 2023 -both official and parallel market rate”
Analysts noted that increased pipeline vandalism, crude oil theft and lack of investment in the oil sector saw Nigeria reporting daily crude oil production at 1.02 million barrels daily as of the end of September 2022.
In addition, it is noted that the CBN’s contribution at the Investors, and exporters’ FX window has declined significantly below pre-pandemic levels by about 30%, reflecting the apex bank’s limited capacity to defend the Naira.
“..We expect rates to trade within a tight band across the different FX segments of the market”, Afrinvest said in its projection for the week. #Naira Trades at N461.50 amidst Low Optimism for Improvement